Performance, stock selection and market timing of the German equity mutual fund industry

Cuthbertson, K. & Nitzsche, D. (2013). Performance, stock selection and market timing of the German equity mutual fund industry. Journal of Empirical Finance, 21, pp. 86-101. doi: 10.1016/j.jempfin.2012.12.002

Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (729kB) | Preview


We investigate the performance of the German equity mutual fund industry over 20 years (monthly data 1990–2009) using the false discovery rate (FDR) to examine both model selection and performance measurement. When using the Fama–French three factor (3F) model (with no market timing) we find that at most 0.5% of funds have truly positive alpha-performance and about 27% have truly negative-alpha performance. However, the use of the FDR in model selection implies inclusion of market timing variables and this results in a large increase in truly positive alpha funds. However, when we use a measure of “total” performance, which includes the contribution of both security selection (alpha) and market timing, we obtain results similar to the 3F model. These results are largely invariant to different sample periods, alternative factor models and to the performance of funds investing in German and non-German firms — the latter casts doubt on the ‘home-bias’ hypothesis of superior performance in ‘local’ markets.

Item Type: Article
Uncontrolled Keywords: Mutual fund performance; False discovery rate; Market timing
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance

Actions (login required)

View Item View Item


Downloads per month over past year

View more statistics